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Executives

Jan Hommen – Chief Executive Officer

Mike Smith – CEO, U.S. Annuities Business

Patrick Flynn – Chief Financial Officer

Rod Martin – CEO, U.S. Insurance Business

Analysts

Farooq Hanif – Morgan Stanley

Farquhar Murray – Autonomous Research

Duncan Russell – JP Morgan

Michael van Wegen – Merrill Lynch

William Elderkin – Societe Generale

William Hawkins – Keefe, Bruyette & Woods

Thomas Stoegner – Macquarie

Toby Langley – Barclays Capital

Tony Silverman – S&P Equity Research

Jan Willem Weidema – ABN AMRO

Fredric Salono – Unidentified Analyst

Raghu Hariharan – Citi

Omar Fall – UBS

ING Groep N.V. (ING) Insurance U.S. Closed Block VA Assumption Conference Call December 7, 2011 6:00 AM ET

Operator

Good afternoon. This is Christine. Welcome you to ING’s Conference Call on the U.S. Closed Block VA Assumption Review.

Before handing this conference call over to Jan Hommen, Chief Executive Officer of ING Groep, let me first say that any forward-looking statements in today’s comments are subject to a number of current views, assumptions and variables, including interest rates, foreign exchange rates, inflation rates, movements in securities markets, including equity markets, changes in policyholder behavior and underlying economic condition.

These are set out in greater detail in our public filings, which we would urge you to read. The realization of forward-looking statements could be materially altered by unexpected movements in any or all of these and other variables.

Good afternoon, Jan, over to you.

Jan Hommen

Okay. Well, let me see. Good afternoon and good morning. Welcome to the call. I apologize for the early hour especially because we have many people apparently all located in New York today. As we announced with the third quarter results, we have been conducting a sort of review of our policyholder behavior assumptions in our Closed Block of Variable Annuities in the U.S. This is part of a normal annual review of actuarial assumptions for all of our [entry level] businesses.

The review shows our current U.S. policy behavior for Closed Block VA policies diverges from earlier assumptions that were made by ING. That is due in part to the ongoing market volatility and challenging market circumstances, which means a large proportion of the policyholder guarantees are currently in the money.

I will stress that policyholder behavior is very difficult to project and is very sensitive to equity market performance and interest rates, as well as other factors, such as competitive product offerings, distributor size, tax incentives, the age of policyholders, the degree to which guarantees are in the money, as well as personal financial needs.

Annuities can be on our books for long time, often 30 years or more and they were predominantly sold between 2003 and 2009, which means we still have limited experience in some cases from which to extrapolate expected policyholder behavior out into the future for the life of these products.

Nonetheless, we have conducted an extensive review of policyholder behavior covering periods both pre and post crisis. We now have a larger body of actual experience to analyze and a longer period with low equity markets and interest rates as the financial crisis persist.

As a result, we have updated our policyholder behavior assumption for lapses, mortality, amortization, as well as low benefit for utilization. Combined these changes are expected to result in a charge of between €900 million to €1.1 billion on the U.S. Closed Block Variable Annuity business and we will take that loss in Q4.

I would like to emphasize that this is a closed block. I decided to stop the business in early 2009 and have since closed distribution channels, reduced costs and brought a new management to run off the book. Last year we took significant steps to de-risk the liabilities by increasing hedging for interest rates and we wrote off a significant portion of the DAC associated with this book.

Following the charge in the fourth quarter, the DAC on the Closed Block VA we will be fully written off and we believe the policyholder behavior assumptions will be in the range of U.S. peers. But it’s annoying to announce this kind of news. The actions announced today represent a necessary step to address legacy issues in the Closed Block as the new management prepares the U.S. business for standalone.

From a capital perspective, part of the impact of this charge can be absorbed within the RBC ratio of the U.S. insurance subsidiaries, which stood at 492% at the end of September and will stay well above our 425% targets.

ING also plans to provide a contingent funding facility of €1.1 billion to its U.S. insurance business to ensure ongoing compliance with U.S. regulatory requirements. ING insurance U.S. will continue to work on improving its overall regulatory capital position by retained earnings, further de-risking and changes in asset allocation. For ING insurance as a whole, the charge will have a small negative impact of 12 percentage points on the IGD ratio but that is expected to remain strong at approximately 230%.

I would now like to hand over the call to Mike Smith. Mike joined ING as CEO of ING U.S. Annuities in 2009, with the particular assignment to run down the U.S. legacy business. He will walk you through the assumption changes and the process we have gone through. Mike, would you please make your comments?

Mike Smith

Thank you, Jan, and good afternoon and good morning to all on the call. It’s important to understand that the policyholder behavior assumptions and question are in fact fairly complex formulas. These formulas are driven by numerous factors, including moneyness, age, policy duration, policy type and others.

As we project our block into the future for use in our financial models, the characteristics of policies are used in the formulas to project the expected experience. There are literally thousands of possible combinations of factors and thus thousands of what I’d call buckets in which to group our experience, each year we conduct a study of policyholder behavior to assess whether our underlying assumptions still represent managements best estimate for each of these buckets.

Our VA lapse study this year for example covered more than five years with over 60 million data points, spanning over 30 products, 30 writer versions and 16 different types of guaranteed death benefits. The experience period included a very wide set of economic conditions as well.

Now you may be wondering why now? When we did this study last year in Q3 there was very little data on lapses and annuitizations to show how policyholder behavior might change as guarantees came into the money.

But now, a year on, equity markets and interest rates are down and we have another six quarters of policyholder behavior on which we can base our analysis. This more than doubled the amount of post-crisis experience. As a result, we have much richer amounts of data for the in the money buckets than were available in past studies. So we gathered the data for our block going back over the period 2006 through the third quarter of 2011, which covers both pre and post-crisis experience.

Overall, we saw that -- we saw less favorable experience than we had previously expected, particularly with respect to the lapse assumptions and more specifically, the sensitivity of the policyholder behavior to the in the moneyness of the guarantee.

In summary, our assumptions are based on management best estimates and policyholder behaviors influenced by many factors. As Jan said, that makes it very difficult to predict, which is why these assumptions are subject to annual review. As more experience comes in, we will continue to update our assumptions as needed.

It’s impossible to predict future changes with absolute certainty, as they will depend on the experience that is actually observed. However, we have clearly made a big step forward today with the adjustments we’ve announced.

Jan, back to you.

Jan Hommen

Thank you, Mike. Well, these are the introductory comments we’d like to make, together with me here are Patrick Flynn, our CFO; and Rod Martin, the CEO of our U.S. Insurance Business, and you heard already Mike Smith, the CEO of our U.S. Annuities Business.

So we are ready for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Thank you. Our first question comes from Farooq Hanif. Please go ahead with your question.

Farooq Hanif – Morgan Stanley

Good morning or, sorry, good afternoon, sorry, I’m calling from the States. Just a few questions please. And could you tell us which products in particular are causing the most pain, so is it old blocks of GMIB or is it more recent blocks of GMWB or is it generally? That’s question number one.

Question number two is, does the fact that your book is closed, does that have any influence on the level of charge you’re taking or do you think that’s kind of irrelevant?

And my third question is, you said that lapses were the main cause of it. What’s the second largest cause and could you give some sort of percentage allocation of that €900 to €1 billion qualitatively if not quantitatively, just to give us a feel for what that’s actually driving it? Thank you.

Jan Hommen

Okay. Good morning, Farooq. And I’m sorry to do that to you, I think Mike will answer this question.

Farooq Hanif – Morgan Stanley

Okay.

Mike Smith

The first question was which products are causing, I guess sort of the most pain if you will, is it one of the GMWB, IB or both. I’d say the -- we focus more on the assumptions across all of the product lines and so the relative impact is fairly equally spread. I think that the -- we would expect generally the experience to be fairly consistent across the different product lines.

The second question was whether the Closed Block influence is the level of charge whether the fact that it is a Closed Block influence is the level of charge. I do not think that that’s the case. This is a, these assumptions are simply being trued up to what we’ve seen and experienced, leavened with management’s best judgment, come up with a true best estimate of how policyholders will behave. It’s the impact of that change in assumption that’s causing the charge.

And then finally, any additional detail as to what the second one is. At this point, we’re not providing any additional breakdown of the impact by assumption. But lapses is…

Farooq Hanif – Morgan Stanley

Okay.

Mike Smith

… just, I’m sorry, Farooq, I think lapses is as we mentioned significantly the most important.

Farooq Hanif – Morgan Stanley

And sorry to you, just in the interest of me getting as much information before, just if I may add one more question. I mean, your charge is three -- I think three -- potentially three times bigger than, I think, you posted before in the previous years, I think you had something in the region of €300 million in previous years.

I mean, that’s a very, very, very big increase and is that just because before you were making more kind of estimates and using your own subjectivity and now you find a bit of massive deterioration. I mean, what’s been the reason, the main reason why your charges look so much bigger or are you being conservative on purpose because you’ve got an IPO coming up?

Mike Smith

Good questions. I think the reason for the relatively large size is probably two fold. But first is, this is really the first time that we have enough experience to make a good judgment on how policyholders behave across these factors and in particularly, how they behave when their benefits are in the money.

If you think back to where we were in 2010, we really only had four, maybe five quarters of that kind of data and it was difficult to -- while there was some evidence, it was fairly limited and so we made modest changes at that time. Now we have twice the experience.

And that gives us much richer data to be able to, it gives us a lot more data to be able to make judgments about how people behave in some of level of detail. I think the size of the charge is also largely due to the -- to simply the degree of true up that we were able to make. And we’ve taken a big step toward making it truly management’s best estimate based on the best available information we have.

Farooq Hanif – Morgan Stanley

Okay. Thank you very much.

Operator

Thank you. Our next question comes from Farquhar Murray. Please go ahead with your question.

Farquhar Murray – Autonomous Research

Good morning, gentlemen. Just three questions if I may. Firstly, I just wondered if you can give us any sense of what the magnitude or incremental impact would have been if you’d taken the confidence level to say 60% or 70% in terms of the approach on the book there.

Then secondly, I just wanted to get a detail whether you might be able to give us the size of the SOP 03-1 reserve of the book at the moment?

And then, finally, I may have missed it in the press release. But what is the tax status of this charge, is it pre or post tax? Thanks.

Patrick Flynn

You can start.

Mike Smith

This is Mike. I’ll take the first couple. The impact of going to 70% is not a number that we have available at this time. In terms of SOP numbers, I don’t have those here with me. I think those we can disclose at a later point in time probably with the fourth quarter results and as to tax, Patrick?

Patrick Flynn

Yeah. Well, this is a net impact. We’re not taking a tax deduction on this in light of some of losses we’ve taken, yeah, so far, so the number you quoted is the net impact.

Farquhar Murray – Autonomous Research

Okay. Just another one quick follow-up. I mean if I was looking at the €0.9 to €1 billion charge where is that taking the confidence level from in terms of going to the then 50% level?

Mike Smith

Yeah. Just a bit of clarity on the RAT 50 test. This would be -- we will maintain our reserve adequacy at 50%. The IFRS rules here require us to do that and we do not really have the latitude to try and engineer it to a number that’s higher, so we will see 60% number you mentioned earlier. So it’s partly why we give the number. So what we will do is may ensure that the reserve adequacy for the Closed Block VA is at a minimum, at 50% going forward.

Farquhar Murray – Autonomous Research

Okay. Thanks much.

Operator

Thanks. Our next question comes from Duncan Russell. Please go ahead with your question.

Duncan Russell – JP Morgan

Okay. Good morning. And first question was, could you publish your reserve study of your Variable Annuity Block, given it’s a closed block and you’re not selling any new products, I can’t see any competitive reasons why you wouldn’t publish it. So, perhaps, you could take it publishing your study at the year end or something like that, please?

The second question was, could you provide us the statutory reserves after this action and for reference, the number was $4243 million at the full year 2010. Can you provide that number as of post this action?

And the third question was, in your third quarter 2008 presentation when you lost a significant charge, you said then that the market consistent liability requirement was €2.7 billion at that point in time. Can you give an update to that number, please, as of then, today, post that action?

And then finally on your lapse assumption and you seem to be implying that the assumption you’ve taken is not at the current experience. It’s still slightly more optimistic than the current experience but getting closer to current experience.

I’m just wondering, I’m guessing you do a base case lapse assumption and dynamic lapse assumption. I was wondering if you could give some color on the dynamic lapse assumption. For example, 50% levels in the moneyness, perhaps you could provide us how much do you reduce your lapse assumption for zero to 15% in the money, 15% to 30% in the money and maybe over 50% n the money. So some sort of guidance on that would be useful? Thank you.

Jan Hommen

Okay. So this question is specifically for Mike.

Mike Smith

We’ll handle the model question first while it’s fresh in our minds then we can go back to the reserve study and others. The model, essentially we have a base set of lapses that you use for at the money and that varies by policy, by age, by duration and by surrender charge.

So you start with that and then we apply a formulaic approach that is tuned to best represent our view of how sensitive or how much that lapse will reduce or increase depending on the degree of in the moneyness.

In terms of specific factors, it actually varies by product and by duration. So I don’t think that’s something that we could disclose in a way that would be readily understandable, certainly not in the call.

Duncan Russell – JP Morgan

Okay. Other insurers seem to disclose a number which says, for example, if the product is in the money by 15% to 20%, the surrender rate is reduced, say, by a third. If the product is in the money by greater than 50%, there is no surrender assumed. So can you give some qualitative guidance? I know you don’t, you’re reluctant to, but this is a big charge and it is quite a relevant number. So I wonder if you can give some qualitative guidance on that please.

Mike Smith

I think what we can say is that the new assumption is significantly more sensitive than it was before, particularly as you get further and further in the money. In terms of numbers, I think our view is that it’s too dependent on the specific policy duration to give an overall guidance that would be meaningful, okay?

And then on to the questions about the reserve study, I think we can consider that. I think at this point, we haven’t really given that any thought. So we can -- we certainly take under advisement. I’m sorry, Duncan, what was the second question, I didn’t quite…

Duncan Russell – JP Morgan

The first and second question were...

Mike Smith

... statutory reserves, I think the number…

Duncan Russell – JP Morgan

Absolutely.

Mike Smith

Yeah. I don’t have those here with me. I think we can or not readily at hand after the adjustments that’s something we can certainly get to you.

Duncan Russell – JP Morgan

Okay. And the market consistent?

Mike Smith

In terms of market consistent liability, that’s not a number we disclose. We’re focused on managing both statutory and then the IFRS numbers, which use a combination of fair value and SOP.

Duncan Russell – JP Morgan

Okay. One follow-up then, I assume I didn’t really get any answers on those. So, just for Jan, in terms of the strategy for the disposals of the insurance businesses now and the injection of contingent capital into the U.S., would it be fair to assume that until that’s repaid we shouldn’t anticipate an IPO in the U.S. business?

Jan Hommen

Duncan, I think what we need to do is come back on this and we have call a big meeting in early January, where we will present what our ideas are with respect to the strategy that we have for the company and then we go into the details related to the bank. It will be basically a bank meeting. But I will try to give an overview of where we are with the strategy for the whole company at that time.

Duncan Russell – JP Morgan

Okay.

Jan Hommen

So give me a little bit of time to think through that.

Duncan Russell – JP Morgan

Okay. So thanks.

Operator

Thank you. Our next question comes from Michael van Wegen. Please go ahead with your question, sir.

Michael van Wegen – Merrill Lynch

Yeah. Good morning, guys. Mike Wegen from Merrill Lynch. Two questions, first of all, on the capitalization of your U.S. business. Could you give an indication where you feel RBC ratio should be for you to be competitive in independent environment, in other words when you would be IPO? Is the 425% RBC something that you feel you could live with or do you think it needs to be more in line with peers around 500%?

And the second question, I think that’s related to an unanswered question of Duncan. You seem to suggest that you changed your lapse assumption but not fully in line with today’s experience? Is it therefore fair to assume that we’re going to get another hit next year if markets stay similar, if so, can you please help us understand what kind of hit we need to expect on top of this or is this it in your view? Thank you.

Jan Hommen

Let’s deal with the lapse first, Mike.

Mike Smith

Sure. I don’t think we meant to imply that we did not move to our best estimate of experience. I think we’ve taken into account the experience period that I talked about, all the data we talked about and made our best estimate, taking a significant step.

I think if current behavior continues as is, we would expect only sort of tune-up assumptions, I think assumption changes as we go forward. I think we’ll continue to see evolution in our understanding but I do not think that, we did not set these assumptions expecting a charge of any great magnitude in the future.

Michael van Wegen – Merrill Lynch

Okay.

Jan Hommen

And Rodney will do the RBC ratio.

Rod Martin

Thank you, Jan. Mike, the RBC target that we have on a go-forward basis is 425%, as you know our RBC at the end of the third quarter was 492% and many of the U.S. carriers are 425% or higher and typically the ones that are higher have announced share buyback strategies to, I think to bring that in line with overall capital plans.

Michael van Wegen – Merrill Lynch

Thank you.

Operator

Thank you. Our next question comes from William Elderkin. Please go ahead with your question.

William Elderkin – Societe Generale

Good morning, good afternoon, everyone. Just a couple more questions. Firstly, pro forma for the capital movements. How much fresh capital will you have assigned to the Closed Block business?

Secondly, I think this relates to Duncan’s question. Can you just give a little bit more detail on this contingent financing arrangements and particularly how that could work in an IPO scenario?

Thirdly, when you’re making these lapse assumptions related to in the moneyness and how those will evolve? Are you making any particular assumptions in the development of equity market levels, interest rates, volatilities, from here and can you help us, if you are, could you give us a sense of how these charges will vary with a different equity markets or interest rate evolution.

Jan Hommen

You do the lapse again.

Mike Smith

Yeah.

Jan Hommen

Those are very much (inaudible).

Mike Smith

Okay. This is Mike. Well, I’ll handle the last question first. In setting the assumptions, we try to make them. I guess the term would be robust across all sorts of market conditions. So in setting the assumptions themselves we don’t make any forward-looking, no forward-looking expectations in the markets.

As we calculate some of the metrics, say for example a statutory reserve or an IFRS reserve, there’ll be a certain set of assumptions that are appropriate to the numbers that we’re calculating, but that’s where, the economic assumptions are particular to the measure, not to the assumption.

Rod Martin

Yeah. In terms of the IFRS equity that’s in the Closed Block VA, it’s just under €3 billion before this €1 billion charge and would reduce by that €1 billion amount. And in terms of the contingent capital that the group is providing, a couple of important points to make here, one, let’s not forget that the business in the U.S. is capital generative and part of the capital need is being met by organic capital generation coming from the process businesses has already generated.

So what the contingent capital structure does, it gives us flexibility to meet regulatory capital requirements which include CTE(95), which is a stochastic test of the average of the worst five scenarios, so the extend data will pull out, you may not need the hard capital in place. So the contingent capital provides us with flexibility to cover regulatory capital, but not necessarily put hard capital against events which may not pertain.

William Elderkin – Societe Generale

Yeah. I just have two follow-ups. With the pro forma at €2 billion, does that mean that the common equity or equity inside the business from shareholder’s point of view is now to rather than prior it, does it not increase with the contingent capital or it’s the number that you’re now running with effectively too?

And secondly, completely, differently, are there any sort of product features which ING had that maybe competitors didn’t, which caused particular problems in terms of the deterioration of lapses?

Rod Martin

I’ve just confirmed the first one. Yeah. You’re correct. The IFRS capital drops by €1 billion to the €2 number and the LOC does not go into IFRS equity.

Mike Smith

As to the second, were there particular product features? I think our features were generally consistent with what was seen in the industry. I do think the change in assumption is really more driven by the experience in the starting point of the assumption. It’s not driven by any particular feature or troublesome aspect of any of those features.

William Elderkin – Societe Generale

Okay. Thank you.

Operator

Thank you. Our next question comes from William Hawkins. Please go ahead with your question.

William Hawkins – Keefe, Bruyette & Woods

Hi. Thank you very much. I’ve got two questions. First of all, in your prepared remarks, you made reference to the fact that your revised assumptions are in line with the range of U.S. peers. Could you sort of substantiate that and maybe expand on it, as far as why there’s not a huge amount of information in the public domain. So have you relied on some third-party reserve studies or your own market intelligence and to what extent does a peer group comparison influence your calculations versus your own analysis of your own data?

And then secondly, with regards to your comments about capital, forgive me if I’ve misunderstood, but just to clarify.

Jan Hommen

Okay.

William Hawkins – Keefe, Bruyette & Woods

As I understand it, some of your risk management is also done by an offshore reinsurance entity for variable annuity risk. If I’ve correctly understood that, the €3 billion minus €1 billion gets to €2 billion. Does that include the capital position of that offshore reinsurance entity and if not, could you just explain to us what the capital position there is as well? Thank you.

Jan Hommen

Okay. First one, Mike.

Mike Smith

This is Mike. I’ll handle the first one. I think the statement that we’re within the range of peers is based on a consensus view of talking with consultants and just another an overall sense of where the industry is. It would be difficult to substantiate for the reasons that you mention but I think our view now is that we are definitely within that range.

William Hawkins – Keefe, Bruyette & Woods

I’m sorry, did that actually -- did that actually form parts of your reserve review…

Mike Smith

No.

William Hawkins – Keefe, Bruyette & Woods

…or did you just take your conclusion and then?

Mike Smith

I apologize for missing that. Yeah. No. That was not part of what we considered in setting the assumptions. I think at most it’s sort of an additional comfort that we take after looking at what we did. But if we had learned, otherwise, I think we still would have done what we did because it’s truly our best estimate of -- based on the experience.

Rod Martin

Yeah. The number I referred to is for the whole of the Closed Block Variable Annuity business, which includes the part which is reinsured to the offshore reinsurance entity.

William Hawkins – Keefe, Bruyette & Woods

Okay. Thank you.

Operator

Thank you. Our next question comes from Thomas Stoegner. Please go ahead with your question.

Thomas Stoegner – Macquarie

Yeah. Thank you. Just one question. Will you try to sell the U.S. revenue to book ahead of a possible insurance IPO in the year, as of today would you expect any future or any further charges relating to a possible sale? And would you accept a disposal price significantly above the current book value of the VA business?

Jan Hommen

Okay. You were broking up a little bit in your questioning but what I understood is, we cannot say whether we will sell or not sell ahead of the IPO. That will be determined at a later point in time. We’ll make all the evaluations we need to do and as we have said before, we are flexible in our minds and we keep all the options open. And was your another question, I did not pick that up.

Thomas Stoegner – Macquarie

Yeah. Assuming that you sell it, would you be ready to accept, I guess a pretty significant discount to book will be necessary, would you -- are you are prepared to accept that?

Jan Hommen

Well, I cannot answer that, because I’m not so sure that we are willing to sell at this point in time. So I think that is not a question that I can answer today.

Thomas Stoegner – Macquarie

Okay. Thank you.

Operator

Thank you. Our next question comes from Toby Langley. Please go ahead with your question.

Toby Langley – Barclays Capital

Good morning, everybody. It’s Toby Langley from Barclays Capital. I wonder if you could give us some sense as to the in the moneyness across the book as a whole and byproduct type, if you give us some sense as to whether there is any difference at all between GMWB and GMIB?

The second question is, what kind of equity market return assumption are you building into your model here going forward. And then with regard to utilization assumptions, can you give us some sense as to what level you’re receiving going forward and whether there’s any sensitivity you can provide around in the moneyness, might be useful as well?

And then the final question, Jan, in your opening remarks, you said that it was very difficult to assess policyholder behavior and there were a number of factors that drove how policyholders might decide what to do, of the factors you outlined, which do you see as being the most significant and what should we really be watching going forward, please?

Jan Hommen

You begin with first question.

Mike Smith

Sure. Let me try and take them in turn. First, the question was -- the first question was about in the moneyness.

Toby Langley – Barclays Capital

Yeah.

Mike Smith

And differences between the GMIB and GMWB block and what the proportion of the business is. I think that, first of all, the degree and number of policies in the money fluctuates quite a bit from literally day-to-day, quarter-to-quarter.

I don’t think there are not likely appreciable differences between the two blocks but recognize that even within the blocks themselves, there’s a lot of variations as policies were sold across, in some cases many years.

So degree of moneyness is probably not an incredibly illuminating statistic to know. The equity assumption, our equity return assumption is when we’re making a best estimate assumption is 9% total return for equity, which includes the dividend income.

And the third question was on utilization and what kind of utilization are we seeing. And I assume you’re referring to utilization of the withdrawal benefits or of income benefits or did you mean both?

Toby Langley – Barclays Capital

Yeah. Well, if you can give me both that would be fantastic, yeah.

Mike Smith

I just wanted to make sure I understood your question. I think in the case of annuitization we’re seeing experience that’s higher than what we had assumed and it varies significantly by the in the moneyness of the policy. So the overall aggregate rate varies from period-to-period depending on where the market is. Utilization on the other hand, we’re seeing lower utilization of the withdrawal benefits than we had anticipated in our assumptions and again, that moves around a lot from period-to-period.

Toby Langley – Barclays Capital

Can you give us any sense, is one below 50% and one above, I mean cannot give us any numbers on the kind of base case estimate there for IB and WB?

Mike Smith

Well, sorry, at this point, I don’t think we’re able to give you that kind of information. We don’t disclose the levels of utilization that we’re seeing in each block. The last question you asked was which factor in the opening remarks was of particular importance.

I think the main thing and the primary focus that we’ve built into our formulas is the degree of moneyness. So, that will, I think have the most significant influence on what people do. Now, that’s not to be mistaken though with, if things get more in the money, do not think that that means that there’s another charge coming.

What that, it’s -- the issue will be our predictions of how behavior will be influenced by moneyness and how accurate those predictions are that will drive any potential charge if one should occur or one favorable if it turns out that we’ve overestimated.

Toby Langley – Barclays Capital

Okay. So let me just, can I just check if I understood then? If, so you’re telling me that in the moneyness wouldn’t mean there’s next charge coming, but when it comes to the sensitivity of the utilization rate, you said that was driven by the level of in the moneyness. Is that, am I -- have I misunderstood that and therefore, if in the moneyness is higher, utilization is higher, that surely implies there’s an additional charge coming, is that not, is that the wrong way to think about it?

Mike Smith

Yeah. But, yeah, certainly the annuitization or utilization of the benefit is driven by moneyness. But the additional a charge that would come from an assumption through up would only happen if it turned out that, because we estimate what people will do if, say their benefit is 50%, 60%, 70% in the money, that’s built into the formulas. And so the charge comes only if we determine that that level of sensitivity was in fact different from what we assumed.

Toby Langley – Barclays Capital

Okay. I understand. Yeah. It’d be helpful if you could think about giving that disclosure going forward today because I think as we transition from being -- from waiting and monitoring lapses, to actually monitoring take have an utilization then that becomes clearly the bigger issue?

Mike Smith

Understood. Thank you.

Operator

Thank you. Our next question comes from Tony Silverman. Please go ahead with your question.

Tony Silverman – S&P Equity Research

Yeah. Thank you very much. Tony Silverman, S&P Equity Research. Just returning to lapses and I -- just in the prepared remarks, I think, I’ll, in one of the earlier questions you mentioned that lapses were still the biggest contributors to this number.

I was wondering if you could talk in terms of the change to the lapse assumptions that this involved. Have they sort of have been halved or have they, it’s clearly very sensitive to lapses and if in a sort of representative case scenario, lapses have just come down 10% then that wouldn’t be reassuring but if it’s come down 50% then they would -- they would be a lot more reassuring?

And the second question was just a clarification on the contingent funding facility. And is this currently needed to satisfy the CTE(95) requirements or not and, yeah, if you could talk around that that would be great? Thank you very much.

Mike Smith

I’ll handle the first question the color on the lapse change. I think maybe one way to understand the degree of change in the lapse is simply by understanding the magnitude of the charge and I think that gives you some sense of how significantly we’ve moved the assumptions.

In terms of actually being specific about the assumption itself, what we’ve done is essentially changed the slope of the sensitivity to moneyness and so, yeah, we’ve made bigger changes at more in the money and smaller changes at less in the money. But in terms of qualifying -- quantifying that, I think that would be very difficult to do because it’s a function that’s goes across the entire range of moneyness possibilities and Patrick?

Tony Silverman – S&P Equity Research

Can you provide us, Mike, as an average across you portfolio in a sort of representative scenario at any rate, there will end up being a number of lapses and it would be interesting to know if that is, and there is a number that’s you’re, clearly very sensitive to this sort of calculation. It would be interesting to know how much that has moved.

Mike Smith

Understood. I think the overall lapse assumption in the future depends on which equity and market environment we’re talking about. So it’s very difficult to make a general statement about that that would be useful to, I think draw the conclusion that you’re trying to reach.

Tony Silverman – S&P Equity Research

Okay. Okay. And on the contingent capital?

Patrick Flynn

Yeah. As a consequence of the revisions that we’re making, the €1.1 billion LOC is needed to achieve the requisite CTE(95) level we need to choose, it is indeed needed, yeah.

Tony Silverman – S&P Equity Research

Thank you very much.

Jan Hommen

Thank you.

Operator

Thank you. Our next question comes from Matt de Wit. Please go ahead with your question. Hello, Mr. de Wit, your line is open. Please go ahead.

Thank you. Our next question comes from Jan Willem Weidema. Please go ahead with your question.

Jan Willem Weidema – ABN AMRO

Good afternoon. And I’m calling from ABN AMRO, so its bit shocking. You said that the book is managed separately, has indication for the 50% of this level, in the U.S. it have still been managed as one business, what would then have been the charge?

And secondly, have you changed anything to your hedging extreme for third quarter of 2011 and are you going to make any changes there in the next, let’s say six to 12 months?

Rod Martin

In respect of the reserve adequacy, we disclose when there the reserve adequacy is below 90%. We’ve only done that in respect to the U.S. Closed Block VA, which clearly implies that the remaining business is adequate, above 90%. But we measure the two separately and we do not aggregate because they are two separate blocks.

Mike Smith

And this is Mike. I’ll handle the second question around hedging. As a result of making the assumption changes that changes the sensitivity of our hedge targets to changes in markets and so accordingly we’ll be making changes to the hedge positions, we’ve begun doing so now, and we expect to have those positions in place in the next three to four business days it will depend little bit on market conditions.

Jan Willem Weidema – ABN AMRO

Could you give us a sense of where you want to be?

Mike Smith

We want to be fully hedged according to the targets that we’ve explained in the past where our delta hedging our income benefits and doing a full toward fair value hedge on the WB portion.

Jan Willem Weidema – ABN AMRO

Thank you.

Operator

Thank you. We have a follow-up question from Farooq Hanif. Please go ahead with your question.

Farooq Hanif – Morgan Stanley

Hi, there. Very quick question. You said that you’ve written off all the DAC in that business. Do we have -- is there any kind of earnings implication from that going forward, qualitatively? Thank you.

Jan Hommen

Qualitatively there will be no more amortization of DAC. So that would be a potential positive. It also means that there’s no DAC offset in terms of the K factor adjustment that gets made when you have other write-downs. So it’s a little bit of a mixed bag but ongoing, the DAC amortization will be zero.

Farooq Hanif – Morgan Stanley

Thank you.

Operator

Thank you. Our next question comes from [Fredric Salono]. Please go ahead with your question.

Fredric Salono – Unidentified Analyst

Yeah. Good morning. Just on the moneyness, is it fair to say that the level of interest rates remains the main driver for the level of moneyness of the options in your model or not? Thank you.

Mike Smith

The primary driver is equity markets. The majority of the policyholder funds are invested in equity or equity-related funds and so moneyness is driven by the change in the value of those funds. Interest rates actually works a little bit counters intuitively, right. Because there are fixed income funds, so when interest rates go up that does affect the value of the funds a little bit. But the primary driver by far is equity levels.

Fredric Salono – Unidentified Analyst

Yeah. And where the assumption is the 9% across the Board you were mentioning before, correct?

Mike Smith

In our metrics that is our standard long-term assumption, yeah.

Fredric Salono – Unidentified Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from William Hawkins. Please go ahead with your question.

William Hawkins – Keefe, Bruyette & Woods

Hi. Forgive me for dragging the call out. Sorry. Can you just give me briefly understand, your IFRS numbers fall by a third, but your RBC ratio falls by an awful lot less than that. Sorry, if I’m being sleepy. Is that because of a difference between IFRS and stats? Is it because of an adjustment to require capital because you’ve taken this charge or is it just the LOC adds back into available capital? I’m sorry, I’m just confused about why you have a big fall in capital but it’s…

Rod Martin

Yeah. The RBC applies to the onshore business. The RAT 50 refers only to the Closed Block VA business. They’re different things. So the reserve adequacy for the onshore business, as I said before, is sufficient and comfortable over 90% and but what we’re talking about is the reserve adequacy of the Closed Block VA, which is offshore and just to repeat myself, RBC refers to the onshore businesses.

William Hawkins – Keefe, Bruyette & Woods

Yeah. Thank you. Okay.

Operator

Thank you. Our next question comes from Raghu Hariharan. Please go ahead with your question.

Raghu Hariharan – Citi

Hi, there. Good morning and/or afternoon. Just two quick questions. First on the contingent capital, I was wondering why would this capital be contingent considering that this is needed to meet regulatory requirements, could you give us a sense of whether you expect either the capital requirements to come down or either dividends from the operating companies to fulfill capital requirements going forward?

Secondly, on lapse rates, have the lapse rates, now that you have additional data, have they stabilized or are they still getting lower and have you added a margin to come to your charge? So, just to get a sense of if you’re comfortable with where the lapse rates are, I realize it’s related to the in the moneyness and whether you’re seeing some stabilization of the lapse rates? Thanks.

Patrick Flynn

Yeah. In terms of the LOC, what’s needed is the facility. The cash isn’t needed today, that’s why it’s contingent, you don’t have to inject the capital [requirement] claims that could arise would be in the future.

And a good point you make as well, the business is profitable. We are generating capital. The onshore business was referred to earlier but right now it’s just under 500%. So there is capital generation coming through, which could well help us reduce this necessity for this LOC going forward.

And also we’d be looking to optimize and further de-risk, looking at asset allocations in the investment portfolio to reduce required capital. So, yeah, indeed, there is a potential for us to reduce the need to provide this LOC as we go forward.

Mike Smith

And then as to the stability of lapse rates, I think the way to think about this is it’s actually, is the relationship of lapse to in the moneyness stable and that’s really what I think has given us, when we only had a few quarters of data, it was hard to say that that was true.

Now that we’ve seen consistent patterns of relationships of lapse rates to moneyness, I think that gives us the confidence and the knowledge needed to make the adjustments and assumptions that we did. So we’ve tried to reflect those relationships as best we can. Going forward, we will see what happens, but as we said several times now, I think it’s, we’ve taken a very large step toward trying to align as best we can the experience with the new assumption

Raghu Hariharan – Citi

Okay. Thanks. If I could just come back on the contingent capital, is there a chance that this capital might become a permanent requirement going forward or a portion of this capital requirement becomes permanent going forward?

Mike Smith

Yeah.

Raghu Hariharan – Citi

I’m just trying to understand the sensitivity of what this, how encumbered this capital could become in the future.

Jan Hommen

Difficult to say at this point in time, as Patrick was saying, we have the ability to generate capital internally. There are the ways also to generate capital in the U.S. So we will see whether there is a need for this capital going forward but we cannot determine that today, that’s why we have called it contingent capital and so it keeps the option open.

Raghu Hariharan – Citi

Okay. Thank you.

Operator

Thank you. Our final question comes from Omar Fall. Please go ahead with your question.

Omar Fall – UBS

Hi. Good morning. Given it’s difficult for you to give us any sensitivities or numbers around your lapse assumption changes, maybe you can help us by giving us more detail as to what you discovered in the peer analysis that you mentioned, as to the main assumption differences between your VA book and your competitors?

And then second question, just broader one, in the context of what’s happened here, can you update us on potentially any delays to the insurance disposal process? Thank you.

Mike Smith

This is Mike. I’ll handle the first question about peer analysis. As we’ve said, we set the assumptions based on our experience and then we got, what I would call, at best a general sense of where the industry is and that gives us some degree of comfort. But we did not do any detailed analysis nor is one possible, given the lack of available data. So the assumptions are based on our experience solely.

Jan Hommen

Yeah. With respect to the sale of the insurance business, I would say, we’re still tracking, we’re still planning the way we have outlined. We will have a more updated view by the time that we get to the Analyst Meeting in January. But I would say at this moment, our best guess is still that we will be tracking the plan that we have set together, so no delays, no change.

Omar Fall – UBS

Thank you very much.

Operator

We have no further questions at this time. Please continue with any further points you wish today.

Jan Hommen

Okay. I would say thank you and again, apologize that we are calling you so early in the morning for many of you who are in New York. Apologize really well meant. Thanks for being on the call and I wish you all a very good day.

Operator

Thank you, ladies and gentlemen. That concludes today’s ING conference call. Thanks for your participation. You may now disconnect.

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